City of San Pablo - File #: #20-212

• File #: #20-212
• Version: 1
• Type: RESOLUTION
• Status: Passed
• File created: 5/18/2020
• In control: City Council
• On agenda: 6/1/2020
• Final action: 6/2/2020
• Title: PUBLIC HEARING AND CITY COUNCIL REVIEW OF THE CITY OF SAN PABLO FY 2020/21 (YEAR 4) OPERATING BUDGET AND CAPITAL IMPROVEMENT PROJECTS BUDGET

Date	Ver.	Action By	Action	Result
6/2/2020	1	City Council	Approved	Pass

PREPARED BY:  J. KELLY SESSIONS                                          DATE OF MEETING:   06/01/20

SUBJECT:                     

TITLE

PUBLIC HEARING AND CITY COUNCIL REVIEW OF THE CITY OF SAN PABLO FY 2020/21 (YEAR 4) OPERATING BUDGET AND CAPITAL IMPROVEMENT PROJECTS BUDGET

Label

RECOMMENDATION

Recommendation

Conduct Public Hearing; authorize placement on the June 15, 2020 Council meeting for adoption of operating and CIP budgets

Body

COMPLIANCE STATEMENTS

Council Priority Workplan Compliance Statement:

Enhance Community Resilience (City Council) is a Major Policy Goal and Diversify the Revenue Stream is a Top City Council Priority item under the adopted FY 2019-21 City Council Priority Workplan, effective March 1, 2019.

CEQA Compliance Statement

This is not a project as defined by CEQA.

BACKGROUND

When originally adopted on June 19, 2017 (Resolution 2017-123), the FY 2018-21 Quadrennial Budget was a four-year appropriation balanced in each of the separate fiscal years, with Years 1 and 2 generally budgeted individually and Years 3 and 4 generally increased by a modest formula.  At the beginning of Year 2, the budget was minimally updated, but in June 2019, halfway through the budget cycle (“mid-cycle”), the budget underwent a major update as planned and was adopted by Resolution 2019-084.  Like the original Quadrennial Budget, the mid-cycle update was balanced in each fiscal year, with revenues and expenditures standing at $45.6 million in Year 3 and $47.0 million in Year 4. 

In March 2020, as staff was finalizing the Year 4 budget update, the City faced the novel Coronavirus pandemic that resulted in the closure of businesses throughout the City, state and nation, indeed even throughout the world, as entire national economies were brought to a standstill.  Most significantly for the City, Casino San Pablo and dozens of other “non-essential” businesses were closed as orders for social distancing and sheltering-in-place were mandated until the pandemic could be more safely managed. 

As fiscal year 2019/20 ends, City administration has developed a multi-pronged strategy to end the year on budget, including among other things, a hiring freeze; layoff of part-time workers; closure of recreation programming and elimination of all City events; and use of one-time funding from the City’s Budget Stabilization Reserve, set aside for this exact purpose.  Developing a budget strategy for fiscal year 2020/21 is more problematic, however, because of the great uncertainty of what the economy will look like and what the “new normal” will be.  What became immediately clear, however, was that the previous FY 2020/21 adopted budget in June 2019 was no longer viable as a result of COVID-19 fiscal impacts.

Budget Strategy

With the lingering effects of the Coronavirus COVID-19 pandemic and the instability in the economy, City administration determined that the best approach for setting the FY 2020/21 budget would be to implement a continuing appropriation of the FY 2019/20 budget as baseline and then factor in the revenue losses to determine how much reduction in expenditures would be necessary.  Currently, the City’s best estimate for FY 2020/21 is a revenue loss of $10 million from the City’s FY 2019/20 baseline, the equivalent of 25% of General Fund revenue or 22% of all revenues. 

To prudently close a budget gap that large requires a multi-pronged approach-addressing both the revenue and expenditure sides of the equation-and including use of additional one-time City reserves.  The City Manager, therefore, is proposing a balanced budget of $40.6 million, which includes a revenue loss of $10 million from the FY 2019/20 budget baseline, offset by use of one-time Catastrophic Reserve funds of $5 million and expenditure reductions totaling an additional $5 million:

The budget strategy includes a commitment from the City Manager to return to the City Council at the end of Fiscal Quarter 1 and Fiscal Quarter 2 (October 2020 and January 2021 respectively) to update Council on the status of the City budget and to make additional adjustments as appropriate during the course of the FY 2020/21 period. 

Revenues

Staff took a conservative approach in projecting the City’s revenue stream.  Most notably, staff is projecting:

•                     $21.2 million in Casino gross gaming revenue-a 22% reduction from the full FY 2019/20 baseline-which equates to 50% of all slot machines being closed for a period of nearly six months due to ongoing social distancing requirements

•                     50% reduction of revenues heavily impacted by the Coronavirus pandemic, including Transient Occupancy Tax (“hotel tax”), Sales and Use Tax, business licenses, permit fees and Property Transfer Tax

•                     Very little to no change in property tax receipts, franchise fees, and utility users’ taxes (UUT’s) as these revenue sources should not be affected in the short-term

•                     Zero revenues when none were received in the current fiscal year or last fiscal year.

Projected revenues total $35.6 million.  Given the unprecedented fiscal crisis caused by the COVID-19 pandemic, the City Manager recommends that at the time the budget is adopted, the City Council make a Statement of Findings allowing appropriation of $5 million from the General Fund Catastrophic Reserve as required by the Fiscal Resiliency Reserve Policy adopted on October 21, 2013 by Resolution 2013-159 and amended on June 20, 2016 by Resolution 2016-218 (see Fiscal Resiliency Reserve Policy, Attachment A).  By policy, use of the Catastrophic Reserve requires that funds be repaid within three fiscal years, thus requiring continued prudent financial management and fiscal restraint.  The approved Statement of Findings would bring total revenues and funding sources to $40.6 as follows:

 

Detailed revenue projections are included with this report as Attachment B.

Year 4 Expenditures

Staff also took a conservative approach in budgeting expenditures for FY 2020/21.  As previously mentioned, prudently closing a budget gap equivalent to 22% of all revenues requires a multi-pronged approach.  In addition to utilizing $5 million in Catastrophic Reserve funding an additional $5 million in expenditure reductions is still needed.  Staff proposes:

•                     10% cuts to departmental service and supplies budgets ($1.5 million)

•                     Postponement or cancellation of CIP projects ($1.0 million)

•                     $2.5 million in labor cost savings.

Aggregate City expenditure information includes labor expense totaling $26.7 million, service and supplies expenses totaling $13.9 million and entirely eliminating the $1.0 million General Fund contribution to annual capital project funding for FY 2020/21. 

                     

Departmental Service & Supplies Budget Reductions

Departments were tasked with cutting approximately $1.5 million (10%) of their services and supplies budgets, which nearly all departments achieved with the exception of two (Administrative Services and the City Manager’s Office).  Both departments had large contractual obligations in their budgets, which could not be reduced.  Detailed budget reduction lists are included as Attachment C. 

FY 2020/21 Cuts in Capital Project Budgeting

$1.1 million in capital project costs are deferred until funding becomes available as follows:

The remaining CIP project expenses for FY 2020/21 total $2.0 million with $1.6 million coming from grant resources and $400,000 from the General Fund Designated Reserve (GFDR); an additional $500,000 is also needed in FY 2020/21 for maintenance of effort requirements for street paving.  All CIP project costs total $105.6 million with $41.7 million already appropriated or approved in prior fiscal years, leaving $62.3 million unfunded for future fiscal years.  A detailed CIP Budget is included as Attachment D.

Reduction in Labor Expenses

With salary and benefits comprising over 60% of all budgeted expenditures, reductions in labor costs must be included as part of a prudent budget balancing strategy.  Therefore, City administration has approached the City’s three recognized labor groups (SPPEA, OE3 and AIE) and requested that these units consent to reopening labor contracts which are not set to expire until June 2021.  Additionally, the City also approached its unrepresented employees to inform them that labor cost reductions would be implemented. In total, the City is looking to achieve $1.9 million in labor concessions from all employees-the three represented groups and the unrepresented employees-plus an additional $0.6 million in frozen vacant positions (5 FTE) for a total savings of $2.5 million which will be spread across all departments.  The City is actively seeking these labor partnerships to reduce the City’s labor expenses.  However, the City is not able to provide individual departmental budgets and associated reductions at this time. 

If successful in these efforts to reduce labor expenses, the City will achieve its goal of avoiding any FTE layoffs for FY 2020/21.  If not, the City will be forced to achieve its required savings of $2.5 million through up to $1.9 million in forced FTE layoffs - equivalent to approximately 11 FTE - plus $0.6 million in frozen FTE positions. 

Public Hearing for the FY 2020/21 (Year 4) Budget Amendment

Per Municipal Code section 3.04.270, annual budget amendments do not require a special published public notice or a public hearing.  However, because of the importance of these amendments and the significant impact that they will have on service levels and City operations, City Council took action at its regularly scheduled meeting of May 4, 2020 to set a public hearing on the budget for June 1, 2020. The place and time of the public hearing was published and otherwise duly noticed to the community, including information and instructions on how to join the public hearing virtually (online) due to the COVID-19 pandemic and continuing social distancing requirements (see Attachment E - Proof of Publication).

Budget, Fiscal and Legislative Standing Committee Review

In addition to the public hearing, the proposed Year 4 budget amendments were reviewed at a public meeting of the City Council’s Budget, Fiscal & Legislative Standing Committee (BFLSC) on May 26, 2020.  The Standing Committee (Pabon-Alvarado/Pineda) supported the proposed adjustments and recommended moving the budget forward to the full City Council for review and approval.   Moreover, the Committee reviewed COVID-19 fiscal impacts on FY 2020/21 General Fund Annual Revenue estimates for the City's Sales Tax Measures Q & K adopted by local voters in 2012 and 2014 and made special findings related to those losses. 

Committee members acknowledged these findings which are being included and presented to the City Council to highlight the corresponding impact of General Fund revenue shortfalls in Measure Q and K sales tax receipts anticipated during FY 2020/21.  This shortfall imposes an opportunity cost to the City of not being able to adequately fund City programs and services currently supported by Measure Q and K sales tax dollars unless immediate actions are taken to reduce Measure Q and K expenditure programs.  Such reductions will bring Measure Q and K programming into line with declining FY 2020/21 General Fund revenue estimates due to uncertainty surrounding circumstances of the COVID-19 economic recovery (see Attachment F). 

Budget Adoption

Following the required public hearing scheduled for June 1, 2020 City Council meeting per Municipal Code requirements noted above, and depending on any additional City Council budget direction by majority vote, the City Manager anticipates a final budget adoption by formal enabling Resolution for the FY 2020/21 period to occur at the next regular City Council meeting on June 15, 2020. If adopted by the City Council on June 15^th, the new FY 2020/21 budget amendment will be in place before the start of the new fiscal year period, or July 1, 2020.  However, per Municipal Code section 3.04.290, the City’s budget adoption by City Council action must occur no later than the tenth day of the start of the next fiscal year period, or no later than July 10, 2020.

FISCAL IMPACT

This report addresses proposed adjustments to Year 4 of the adopted FY 2018-21 Quadrennial Operating Budget and adjustments to the FY 2020/21 CIP budget. 

FY 2020/21 revenues are projected to decrease by $10 million to $35.6 million and will be augmented by an appropriation of $5 million from the Catastrophic Reserve, which by policy is required to be replenished within three fiscal years.  Expenditures are proposed to decrease by $5 million, including $1.4 million in departmental service and supplies budget cuts, $1.1 million in CIP budget cuts, and $2.5 million in labor cost reductions for a total balanced budget of $40.6 million. 

Attachments:

                     A -                      Fiscal Resiliency Reserve Policy

                     B -                     Detailed FY 2020/21 Revenue Projections

                     C -                     Detailed FY 2020/21 Departmental Service & Supplies Expenditure Reductions

                     D -                     FY 2020/21 Capital Improvement Project Budget

                     E -                     Public Hearing Proof of Publication

                     F -                     Measure Q and Measure K FY 20/21 Sales Tax Findings

                     G -                     FY 2020/21 City Council / Public Hearing Budget Presentation